On 14 December, Finance Secretary Derek Mackay will deliver the 2018/19 Scottish Draft Budget setting out the Scottish Parliament's financial and tax plans.
The Scottish Parliament are set to wield their devolved powers: with changes planned to scottish income tax rates and bands; and details on the Scottish replacement for Air Passenger Duty of Air Departure Tax expected, there is likely to be more interest in the Draft Budget throughout the UK this year.
It will also be interesting to see if Scotland follows Westminster's lead in mirroring the changes to Stamp Duty Land Tax for first time buyers in the Scottish Land and Buildings Transaction Tax legislation.
Scottish income tax
Currently taxpayers who are resident in Scotland pay income tax on their non-savings and non-dividend income at rates and thresholds determined by the Scottish Government. Scottish higher and additional rate taxpayers may pay more income tax than those with similar income in the rest of the UK. The Scottish Parliament is considering plans to radically revise the bands and possibly to introduce some further income tax rates so that middle and higher earners pay additional tax.
Current tax rates and bands
Scottish income tax rates differ from those in the rest of the UK. The rates as set by Westminster which apply in the rest of the UK the basic rate of tax is currently 20% and the band of income taxable at this rate is £33,500. This means the that the threshold at which the 40% band applies is £45,000 for those who are entitled to the full personal allowance.
For Scottish resident taxpayers for 2017/18 the band of income taxable at the basic rate for income (other than savings and dividend income) is different. The Scottish Government set the band of income taxable at the basic rate at £31,500 so that the current threshold at which the 40% band applies is £43,000.
The additional rate of tax of 45% is payable on taxable income above £150,000 (other than dividend income) for all UK residents.
Future rates and bands
The government in Westminster has announced that for 2018/19 the basic rate band will be increased to £34,500 so that the threshold at which the 40% band applies is £46,350 for those who are entitled to the full personal allowance.
The additional rate of tax of 45% remains payable on taxable income above £150,000.
The Scottish Parliament will announce their plans for 2018/19 on 14th December but in advance of this announcement have issued The Role of income tax in Scotland's Budget - a discussion paper which contains some interesting suggestions as to the rates and bands that they may introduce for 2018/19. Derek Mackay the First Minister has said that:
Income tax in Scotland should protect low earners, be progressive, proportionate to the ability to the pay and support the economy.
Scotland now has a greater measure of fiscal control than at any time since the start of devolution.
By far the biggest fiscal lever we have is income tax - with 30% of Scotland's budget now coming from income tax receipts. Of course, more than 60% of Scotland's spending power is still dependent on decisions taken at Westminster.
With that greater ability to levy tax comes a corresponding duty to do so responsibly and in a balanced way. My government will always do exactly that.
The discussion document sets out several alternatives for new income tax rates and bands but states that these are only suggestions and other alternatives may be proposed. Two of the alternatives the Scottish Government have put forward are as follows:
|Gross Income||Tax Rate||Number of people in band|
|£11,850 to £44,290||20%||2,165,000|
|£44,291 to £150,000||41%||346,000|
|Gross Income||Tax Rate||Number of people in band|
|£11,850 to £15,000||19%||386,000|
|£15,001 to £24,000||20%||881,000|
|£24,001 to £44,290||21%||898,000|
|£44,291 to £75,000||41%||266,000|
|£75,001 to £150,000||42%||79,000|
It will be interesting to see if the Scottish Parliament introduce more bands and rates in excess of the current maximum of 45% on non savings and non dividend income. Give a thought for the software developers who will have to deal with this change in time for the start of the new income tax year.
Air Departure Tax
The Scottish Parliament are also expected to announce the detailed rates of of Air Departure Tax which takes effect for flights from Scotland from April 2018.
Land and Buildings Transaction Tax
It would seem difficult for the Scottish Parliament to not mirror the change in the rules to SDLT in the Autumn Budget.
Philip Hammond announced that first time buyers paying £300,000 or less for a residential property will pay no Stamp Duty Land Tax.
First time buyers paying between £300,000 and £500,000 will pay SDLT at 5% on the amount of the purchase price in excess of £300,000. First time buyers purchasing property for more than £500,000 will not be entitled to any relief and will pay SDLT at the normal rates.
The new SDLT rules apply to transactions in England, Northern Ireland and Wales (until 1 April 2018 when Welsh Land Transaction Tax is introduced). It remains to be seen whether Derek Mackay will follow suit in the Draft Scottish Budget on 14th December.
How can we help
We are offering a client letter that will cover the key announcements made in the Scottish Budget and will be relevant to those clients who currently live or have a business which trades in Scotland, those who have Scottish resident employees, as well as those who are planning to expand their business or move to Scotland. We will email you the client letter by 2pm on Friday 15 December - the day after Budget announcement. To order our client letter, visit our website.